The Green Sheet Online Edition
March 3, 2026 • 26:03:01
Insider's report on payments
Long live checks - minus the paper
For anyone under the age of 40 it may seem hard to believe, but checks were once the most popular non-cash method of payment. In 1997 just under 57 percent of consumer payments were made by check, according to research at the time. Credit cards accounted for 16.4 percent; debit cards represented 5.3 percent.
"For more than two decades the banking industry has been attempting to eliminate the paper check in favor of a 'paperless' electronic payment system," The Green Sheet noted in a report published that year. "As we approach the end of the century, banks are clearly improving the speed and security of check handling through electronic presentment strategies and bank automation, while hundreds of paperless pilot programs continue to explore new technology, strengthening the banking system's ability to achieve electronic settlement."
However, the report went on to state: "Overall, the paper check payment system continues to function very well and there is no basis for anticipating a check-less society, as predicted by bankers in the early 1970s, even by the year 2050."
The report also discussed what consultants and researchers were predicting: checks (consumer and business) which at the time totaled an estimated 40 billion, according to the Federal Reserve, would continue to grow at a rate of 2 to 3 percent per year for the ensuing five years.
"All available research reflects that checks continue to be a significant part of the overall payment system, representing 23 percent to 24 percent of retail sales," the report stated. Research commissioned by the National Retail Federation, and referenced in The Green Sheet's 1997 report, revealed that better than half (53 percent) of retailers had experienced no decline in check payments in 1997 compared to 1996.
A trip down memory lane
I met Paul H. Green, founder of The Green Sheet Inc., in the late 1990s. I was putting on conferences on what had been dubbed the electronification of checks. Paul made a presentation at one of those conferences detailing check usage data from the 1997 report.
Like Paul, I was convinced that checks weren't going away anytime soon. Where our visions diverged was in how the check payment system would evolve. I saw paper giving way to electronic origination. (Think in terms of filling out an online form, only one that resembles a paper check.)
I saw electronic check presentment (ECP) as a precursor. ECP was popular with large banks at the time. It involved electronically capturing the MICR line information from checks and sending that information to paying banks in advance of the actual paper checks.
Another precursor was check conversion – the process of scanning a paper check to create an electronic item that could be cleared through the ACH system. For a time, POS check conversion was a big deal, and a fairly easy sale.
"The retail environment has seen tremendous growth in the use of electronic POS terminals and check MICR readers. MICR readers allow for check verification using third-party authorization systems, providing valuable risk protection," The Green Sheet noted in a 1999 report. "With that same equipment, merchants can convert the paper to an electronic entry, benefiting from at least one major advantage: if the electronic payment is returned unpaid, the merchant will receive the return in half the time it takes for the paper return to be received."
Industry research at the time suggested consumers were comfortable with POS check conversion: 53 percent said they were very comfortable, 26 percent were somewhat comfortable and 10 percent were neutral, according to The Green Sheet's reporting. The Fed was on record favoring the migration from paper to electronic checks. Impeding that migration, however, were laws and regulations predicated upon the exchange of paper items.
Checks also produced income streams for banks and other businesses. Not just check authorization and guarantee firms either. Playing the float was a common strategy among large companies with B2B check payments. Paying companies would issue checks drawn on banks in remote locales, realizing it would take time for the paper to clear through the banking system, time that would help generate additional interest income and/or improve cash flow management.
"New payment concepts are discussed daily and it seems inevitable to most of us that in the not-to-distant future the payment system will be far different from the one we use today," The Green Sheet's 1999 report stated. "Currently just about everyone you meet in the financial services industry is talking about moving away from checking accounts and converting to debit, ACH, or paperless electronic settlement in one form or another. Yet little is said about how banks will replace the lost revenue."
The electronification of checks
To support the clearing and settlement of the billions of paper checks Americans were writing by the turn of the century, the Fed and the banking industry had invested huge sums of money in the machinery that could read and sort checks, as well as armored vehicles and airplanes to shuttle bundles of paper checks between payee and payor banks.
(At the time, I was one of a handful of reporters covering the Fed, in particular its role in the payments system. I would often joke at the time that EFT stood for ever faster trucks.)
That was then. This is now: according to the Fed's Diary of Consumer Payment Choice, checks accounted for just 3 percent of consumer payments in 2024; credit and debit cards accounted for nearly two-thirds (65 percent). Digital and remote payments (think online and app-based) represented 23 percent of all consumer payments.
Consumer and business checks combined totaled 11 billion in 2021, the Fed reported. That's a far cry from the 40 billion estimated in the mid-1990s. And while those 11 billion checks accounted for just 5 percent of all non-cash payments, they represented 21 percent of the value of all non-cash payments made that year.
911 changed checks forever
So what happened to shift checks from a dominant method of non-cash payments to an also-ran? Several technological developments played a role, including improvements in imaging technology that enabled electronic check presentment and ACH check conversion. But the real impetus was the terrorist attacks of Sept. 11, 2001.
With all commercial and private airplanes grounded for three days in the aftermath of those attacks, bags of checks piled up on loading docks at bank and Fed operations centers, and what had been an efficient check clearing mechanism ground to a halt.
Eventually, of course, the restrictions on air travel were lifted, and those checks got cleared. But the incident forced the Fed's hand. For the first time in its nearly 100-year history the Fed went to Congress with a legislation request. The resulting bill, the Check Clearing for the 21st Century Act (the Check 21 Act), was signed into law in 2003 and took effect one year later.
The Check 21 Act created an instrument known as the substitute check, a copy that was the legal equivalent of the original paper check and used for all purposes as though it were the original check. What that meant was that banks receiving check deposits could take pictures (create images) of checks and use those images to create substitute checks.
At the time, many of us in the payments space thought it was a dumb idea to replace one piece of paper with another. But as industry experts David Walker and Phyllis Meyerson wrote in a 2023 book on Check 21 "it worked amazingly well as a transition vehicle from paper to electronics."
(Walker and Meyerson had run the Electronic Check Clearing House Organization which established rules for check image exchange in much the same way that Nacha establishes rules for ACH payments. ECCHO is now part of The Clearing House.)
From paper to mobile images
Eventually, financial institutions stopped exchanging paper checks completely, replacing the process with image exchanges. "Together Check 21 and image exchange transformed the largest payments system, by volume, in the world from paper-based to electronic-based, and it did so in record time," Walker and Meyerson wrote in Check 21 – a Blockbuster Story.
The Check 21 Act also led to remote deposit capture (RDC). While originally developed for large businesses, especially those that received high volumes of check payments (and could afford high-priced check scanners), it didn't take long before low-cost desktop scanners made RDC practical for smaller businesses and consumers.
The COVID-19 pandemic effectively made RDC a necessity. These days, most small businesses and consumers use their smartphone cameras to capture check images to make deposits to their FIs.
Checks no longer dominate the payments landscape, but they are far from gone. Instead, they’ve evolved. What was once a paper-driven system dependent on trucks and airplanes is now largely an image-based network moving data electronically between financial institutions. Far fewer checks are written these days, but the value of payments made by check remains significant especially for businesses. Checks didn’t disappear. Like the payments industry itself, they simply adapted to the digital age. 
Patti Murphy is senior editor at The Green Sheet, president of ProScribes Ink (www.proscribes.net) and self-described payments maven of the fourth estate. Her Today in Payments reports are a regular feature of the Merchant Sales Podcast.
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